Question 1

RST Limited is experiencing financial difficulties and is aggressively looking for ways to cut costs. Wilson Lo, the CEO of RST Limited, instructs the accountant, Martin Ho, to lengthen the useful life from 5 years to 10 years in computing the depreciation expense on certain machines. Wilson believes that this change represents a substantial cost savings, as it will reduce the depreciation expense on these machines by nearly one-half.

Required:

(a) Discuss the extent to which Wilsons idea will, in fact, achieve a

cost savings. Consider the effect on the net profit of the business.

(Word limit: 60 words)

(b) Discuss any ethical issues that Martin should consider with respect

to Wilsons instructions.